According to the interest rate effect, a decrease in the price level will
A. decrease the real value of money balances, which causes total planned real expenditures to increase.
B. cause interest rates to fall, which generates an increase in borrowing, so that total planned real expenditures increase.
C. increase the real value of money balances, which causes interest rates to increase, thereby reducing total planned expenditures.
D. lead to a decrease in net exports, which causes total planned real expenditures to decrease.
Answer: B
You might also like to view...
We often witness prices of water, gasoline and construction materials surge in a region just before a major storm hits. Some call this "price gouging." In the economic way of thinking, however, those higher prices are caused by
A) an increase in supply and an increase in demand. B) an increase in supply and a decrease in demand. C) a decrease in supply and an increase in demand. D) a decrease in supply and a decrease in demand. E) practices that are not connected to underlying supply and demand conditions.
If two markets have the same price elasticity of demand at every price, a monopoly will not practice multimarket price discrimination
What will be an ideal response?
A tax on the sellers of cameras encourages
A. sellers to supply a smaller quantity at every price. B. buyers to demand a smaller quantity at every price. C. sellers to supply a larger quantity at every price. D. Both A) and B) are correct.
In equilibrium, if both uncovered and covered interest parity hold, what condition should exist?
a. World interest rates will be equal. b. Rates of inflation will equalize. c. The forward rate will equal the expected future spot rate. d. The forward rate will decrease as the spot rate rises.